Certified Government Financial Manager (CGFM) Practice Exam 2025 - Free CGFM Practice Questions and Study Guide

Question: 1 / 875

What is the traditional approach of line item budgeting primarily based on?

Current year revenue estimates

Prior year spending plus an inflationary factor

The traditional approach of line item budgeting is primarily based on prior year spending plus an inflationary factor. This method emphasizes historical expenditure data, where the budget for the upcoming year is constructed by taking the previous year's spending and adjusting it for anticipated inflation. This reflects a conservative budgeting strategy that assumes past spending levels are indicative of future needs, providing a straightforward way of assessing how much funding is necessary for ongoing operations without major changes in service delivery.

This method is commonly used because it simplifies the budget preparation process and fosters predictability in government expenditures. As a result, line-item budgets focus primarily on the amounts allocated to specific tasks or functions, allowing for easier tracking of expenditures and accountability in spending.

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Projected future economic conditions

New service requirements for the coming year

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